Regarding #1: It is okay to pay readers/contest fees as long as they are reasonable. $149 to enter a contest from a brand-spanking new publishing house that's offering part of your prize in vaporware is not reasonable by any stretch of the imagination. Anything over about $20 requires close scrutiny, IMO.

Regarding #2 and 3: Yes. Also especially distrust someone who says they're going to change the publishing world using a system that's already in place and has been for some time.